Payment Delay Increases Outpace Decreases in Western European Countries Surveyed
Credit professionals noted a 20% increase in payment delays for both Italy and Spain, according to FCIB’s latest International Credit & Collections Survey. Other countries in the July survey—Greece, Poland and the United Kingdom—registered delays of 15%, 13% and 16%, respectively.
At least half of the participants observed no change in payment behavior in the countries surveyed, while 6% to 12% found payment delays decreasing—with the U.K. experiencing fewer decreases and Greece, the most.
Delays in Italy and Spain were due to several reasons, including administrative processes, cultural norms, cash flow issues or payment policies.
When doing business in Italy, “be wary of customers that are over leveraged,” one credit manager shared. “Many companies will take as long as you allow [them] to pay so it is important to manage them closely.”
Another survey taker explained that customers in Italy expect terms of 90 to 180 days. “In general, we do not extend terms this long, but we do find customers withholding payment or paying outside of extended terms,” he said.
Similarly, “Companies in Spain tend to pay beyond terms, but good account management and setting expectations can have good results,” a credit manager said. Overall, he does not find it a difficult country to export into.
In Greece, a respondent explained that the amount due plays a part in what his company must do to get paid in a timely manner. “One customer needs a letter from us that states if they don’t pay, the orders/shipments will be on hold. They present the letter to their bank, and we are paid within 10 days. Another customer never asks for such a letter, but the amounts due are lower.”
Brexit continues to raise questions for credit professionals who do business in the United Kingdom. Both Brexit and the strength of the dollar against the pound have affected “our customers’ margin and cash flow,” a credit manager said. “We finance on open account with guaranties, but keep them on a strict payment deadline.”
FCIB members can view the complete results for the survey here. The next survey opens Friday and will include Middle Eastern countries. Each participant will receive the complete results, which includes payment trends for the countries formed from previous surveys.
Has China Ended Its Deleveraging?
Chris Kuehl, Ph.D.
The powers that be in China were deeply worried about the state of the financial system at the start of the year. In April, banks tightened their credit considerably—trying to dry up that liquidity. At the same time, the government installed a new and far more aggressive regulator who went after the banks hard with a flood of new rules and interpretations. The effort was a major success—almost too much so.
The Chinese have elected to reverse course and move toward boosting the financial sector and by extension, the economy. The central bank has injected some $53 billion into the system in the last few days, while the regulators have indicated that they will relax somewhat. The lenders in China have been in a real quandary for months because they have been short of cash and have no idea what they are supposed to be doing. There is still a great deal of confusion within the banking sector because nobody knows when the leadership might want to reverse course again. The goal is some kind of happy medium, but that has proven very hard to achieve as the tendency is to overshoot in one direction or another.
Analysts who had been trying to determine what the Chinese were after assert the deleveraging effort was not well enough understood. Evidently, Chinese authorities were shocked at what the policies triggered. It was assumed the deleveraging effort would play out slowly and deliberately, but that is not what happened. The effort to back away from the debt crisis was so dramatic it nearly triggered the outcome the policies had been trying to avert.
The regulatory part of this was far more influential than had been anticipated because bank officials really did not understand what they could and could not do. Banks essentially froze, just about shutting down the whole economy. This is what has prompted the retreat and the sudden flow of stimulus. Now there are worries that this might be too much, and it will cause problems akin to the ones that existed a few months ago. Fine tuning an economy the size of China’s is anything but simple.
In the immediate aftermath of the efforts to deleverage, banks started dumping short-term bonds at an accelerated rate—causing the government’s short-term bond yield curve to invert. The impact was more dramatic and severe than had been expected. Most analysts think the current strategy will be short lived, and they assert that China remains most concerned about financial stability and deleveraging.
Some of those measures to control the debt crisis will likely reappear, but in a far more controlled manner. For now, the idea is to get the banks back to some semblance of normal, but with an eye toward keeping them from getting carried away. The crux of the ongoing crisis is that regional banks have a very hard time turning down the requests from local and regional governments. These entities are focused on projects that create jobs. They are far less worried about whether these projects are profitable or financially secure.
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Digitization Supports Trade Finance
True digitization goes beyond automation. “It extends to new ways of acquiring and processing vast amounts of so-called ‘big data’ that are said to be increasing in complexity at a rate of 1,000% per decade,” said David Hennah, head of trade and supply chain finance for London-based Misys.
“The future and the present are digital,” Hennah said. “Over recent years, we have seen each new technology outpace the adoption of its predecessor. The future will see adoption rates measured in weeks or days rather than years. Cross-border e-commerce has already grown to represent more than 10% of trade in less than a decade.”
An upsurge in digital technologies has also enabled even the smallest of companies to source and to sell cross-border, he added.
For example, India’s services sector and micro-, small- and medium-sized enterprise segment (MSME) has benefitted from digitization, according to an Asian Economic and Social Society study.
“Digitization improves the performances of MSMEs and helps in reducing financial obstacles by providing alternative financing options to the MSME,” the study finds. “Increasing access to alternative finance has resulted in the significant rise in MSME’s operating performance, profitability and productivity. The high performance of India’s services sector and MSME segment contribute significantly to the overall trade growth.”
A TRF News article names digitization the fourth industrial revolution, behind the mechanizing production with water and steam, using electricity for large-scale production and automating production with technology, respectively.
Digitization represents one of the biggest fundamental changes for trade finance in our lifetime, Hennah said
Hennah will join Fred Dons, director and head of trade credit finance for Deutsche Bank in Amsterdam, and Fabrice Morel, a partner with Strategy Alliance GmbH in Dusseldorf, Germany, at FCIB’s Rome International Credit and Risk Management Summit. The trio will present Is Digital the Future of Trade? The session will consider how technology will transform risk assessment, transactions and funding of trade. Click here to learn more about this year’s summit, which takes place Sept. 10-12 in Rome.
G20 wraps up avoiding a trade war … for now. The group of the 20-most-powerful nations agreed on July 8 to keep markets open, while German Chancellor Angela Merkel urged the leaders to address steel overproduction to avoid a potential trade war. (EurActiv)
U.S. Commerce Department hits four countries with antidumping duties. U.S. Secretary of Commerce Wilbur Ross announced earlier this week the final determination in antidumping duty (AD) investigations, finding that emulsion styrene-butadiene (ESB) rubber from Brazil, Korea, Mexico and Poland were being sold in the U.S. market at unfair prices. (Global Trade)
Global export credit falls amid U.S. Exim wipeout. Medium- and long-term export credit activity nosedived among OECD countries in 2016, led by a massive decline in activity at U.S. Exim. With notable exceptions, export credit volumes declined in many major markets. Most obviously, there was a 97% fall in support from U.S. EXIM, Japanese agency support dropped by 63%, backing from Euler Hermes in Germany was down 39%, while the numerous Korean agencies saw their export credit support fall by 23%. (Global Trade Review)
Brazil’s ex-president sentenced to 10 years for corruption. The former president of Brazil, Luiz Inácio Lula da Silva, was found guilty of corruption and money laundering on July 12 and sentenced to nearly 10 years in prison, a stunning setback for a politician who has wielded enormous influence across Latin America for decades. (Business Mirror)
Mongolia’s presidential election outcome a win for Putin. Khlatmaaglin Battulga became Mongolia’s fifth president last week, rising to power with a populist agenda that promised increased state control of the mining sector and skepticism about Mongolia’s economic dependence on China. Battulga went to great lengths to emphasize his pro-Kremlin attitude throughout his campaign. (Interpreter)
China’s tightening grip on Hong Kong. On July 1, Hong Kong marked the 20-year anniversary of the British handover to China. While the past two decades have seen marked economic growth and continued integration with the rest of the world, economic stagnation and social discontent are forming pressure points under the surface. As the Chinese State Council continues to exert control over the city, and manage the mainland’s own relative competitiveness, the future of this financial hub is as uncertain as ever. (Global Risk Insights)
How Brexit is set to hurt Europe’s financial systems. If Brexit happens with little provision for London’s financial services, banks, funds and insurers in London will lose their ability to sell many of their services to European companies. Such upheavals will hurt not just London, say bankers and businessmen, but Europe as well. Financial firms say such shifts will mean the cost of banking for European companies will have to rise, though it is not clear yet who will pick up the bill–the banks or their clients. (HSN)
Venezuela oil exports to Cuba drop, energy shortages worsen. Venezuela's crude and fuel deliveries to Cuba have slid almost 13% in the first half this year, according to documents from state-run oil company PDVSA viewed by Reuters, threatening to worsen gasoline and power shortages in the communist-run island. Cuba's government, since 2016, has reduced fuel allocations 28% to most state-run companies, and has cut electricity consumption. Public lighting was cut 50%, while residential electric use was spared. (VOA)
Venezuelan weekend vote seen as last chance to stop power grab. Venezuelans headed to the polls on July 13 in a tense vote that the opposition hopes will mark a watershed—and the government insists means nothing at all. The weekend plebiscite askedvoters if they support the government’s plan to elect an unpopular National Constituent Assembly that will overhaul the 1999 constitution. Critics, including some inside the ruling United Socialist Party of Venezuela, fear that President Nicolás Maduro will use the new entity to tighten his hold on the South American country and further delay—or outright cancel—elections. (Miami Herald)
Week in Review Editorial Team:
Diana Mota, Associate Editor and David Anderson, Member Relations